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Book Review: The Economics of Plunder


Government: Whose Obedient Servant? A Primer in Public Choice
by Gordon Tullock, Arthur Seldon, and Gordon L. Brady (London: Institute of Economic Affairs, 2000); 184 pages; $15.

IN SPITE OF THE COLOSSAL DISASTER of socialism throughout the world and the corrupt inefficiencies and distortions caused by the interventionist-welfare state, virtually every country in the world clings to various elements of these failed economic systems.

What is it that makes reducing the size and intrusiveness of government so difficult?

The subfield of economics known as Public Choice theory has developed insightful answers to this question. This approach could also be called the economics of the political process. Two of the leading developers of Public Choice analysis during the last 40 years have been James Buchanan (the 1986 recipient of the Nobel Prize in Economics) and Gordon Tullock. In spite of its growth and recognition as an important contribution to political-economic understanding, Public Choice still remains fairly unknown among the general public.

Government: Whose Obedient Servant? offers a readable exposition of Public Choice theory and its application for understanding the nature of the political process and the tendency for the growth of government. The first half of the book is written by Gordon Tullock, who offers a clear summary of the approach. The starting point of Public Choice theory is that the logic and rationality of the political process has the same foundation as economic theory in general: individuals, whether in the marketplace or the political arena, are guided by self-interested motives to improve their circumstances; they weigh costs and benefits, and they respond to incentives.

As in the marketplace, in politics there are demanders — those who desire favors and privileges from the government; and there are suppliers — politicians who offer favors and privileges in return for campaign contributions and votes. In addition, there are the bureaucratic managers of the regulatory, interventionist, and redistributive system, who are constantly on the lookout for ways and means to expand their authority and increase their budgets as avenues to more power and opportunities for promotion and higher salaries.

Why do voters not see through the propagandistic smoke screen that is used to rationalize this process of legalized plunder? Tullock argues that it is because voters are “rationally ignorant.” For any one voter, his ballot, in terms of its potential to make the difference in any election, is insignificant in relation to all the votes cast.

Thus, for most people it is just not worth the personal cost in time and expense to become intelligently informed on all the various policy issues that are being advocated by politicians, interest groups, and bureaucrats. Therefore, the average individual has little incentive to incur the intellectual expense to penetrate the political smoke screens.

Another aspect of Public Choice theory that Tullock outlines is what is known as “voting paradoxes.” This refers to the fact that when the members of a political community personally rank various possible social purposes and policies in differing order from each other, there may be no combined rank ordering that results in unanimous agreement.

Moreover, combining subgroups of an individual’s preferences on these issues can lead to different majority combinations, no one of which can be said to represent any “correct” expression of the “general will.”

Indeed, controlling the sequence in which various votes on issues are taken can determine which majority combination emerges. Thus political “mandates” usually reflect the intrigues of those who have power over the legislative and voting patterns.

An extension of the voting-paradox process is “logrolling.” This is the horse-trading of votes among elected officials to form voting coalitions in the legislature for their respective pet programs to be passed. The cumulative result from this procedure is that many government programs are implemented that, if they were left standing on their own, would never muster an ordinary majority support.

What motivates the drive for government favors and privileges is “rent-seeking” behavior. In the free marketplace, the only way in which producers can earn revenues and profits is by successfully competing against their rivals in offering better and less-expensive goods to the consuming public. But, Tullock says, there is another route to profits: the use of government to obtain restrictions and protections limiting the ability of market rivals to compete in one’s own market or to receive direct government subsidies or contracts from the government to gain profits.

This is called “rent seeking” in the Public Choice literature. The costs from this process of politically acquired profits, Tullock explains, are the resources and labor devoted to manipulating the political process to one’s advantage, rather than to producing the goods and services potentially desired by consumers on the market.

Furthermore, successful rent seeking results in closed-off markets and limits on competition, all of which in the longer run reduce the innovation and competitive rivalry that normally act as the stimulus for improvements in the quantities, varieties, and prices of goods available to consumers.

Tullock also suggests that Public Choice theory can offer insights into the benefits from political federalism lost when power is centralized in one single political authority within a country. First, that very diversity of policy preferences among people that can generate voting paradoxes suggests the reason that many issues should be decided at the local level, where the people most directly interested in and possibly affected by a particular policy may be concentrated. A smaller group may sometimes find it easier to reach a common agreement about things.

Second, if issues to be voted on are localized, the number of voters participating in an election is reduced in comparison to a national vote. As a consequence, the importance of any one person’s vote increases, and more people may be influenced to incur the personal cost of becoming better informed about the policies on which they may be expected to vote.

Third, if a jurisdiction is decentralized and its geographic size reduced, an individual who feels strongly enough that he can no longer endure the policies implemented within the area in which he lives, has a shorter way to go to move away. Some of the costs of “voting with his feet,” in other words, are reduced.

And, fourth, having many competing governments makes it easier for citizens to compare and contrast the costs and benefits from government programs implemented in different political jurisdictions. It may make some voters more informed about the likely consequences to be expected from a policy if they can “look next door” at a neighboring political jurisdiction that has already been experimenting with a policy they are being asked to vote on.

The second contribution in the volume is by Gordon Brady, who applies the ideas explained by Tullock to a number of policy issues. He gives special attention to the example of barriers to international trade.

Protectionism has a long history of support, in spite of 200 years of free-trade advocates’ refuting the protectionist arguments over and over again. Brady shows that protectionism has persisted because of the concentrated benefits a special-interest group can obtain at the expense of consumers if they are able to have a tariff or an import quota imposed against their foreign rivals. Thus, they have strong incentives to incur lobbying costs to get their way.

But precisely because any one consumer will bear only a small fraction of the full cost of those barriers to international trade, he will have little or no incentive to become an informed voter and see behind the smoke-screen rationales, especially since, as we saw, his single vote usually counts for almost nothing in the voting process.

Finally, Arthur Seldon brings together these various strands of Public Choice analysis to suggest why it is precisely so important to appreciate the dangers and costs of the interventionist-welfare state. He gives particular attention to the crucial difference between the market process and the political process. In the market arena, relationships are voluntary, and each choice and demand can be separated and decided upon apart from others.

But in the political arena, relationships are based on force because the results are coercively imposed on people whether or not they supported the policies. This also highlights the fact that after any election, each voter is forced to live with a “package deal,” i.e., all the policies to be implemented by the politicians elected. No one can refuse to pay for or obey only government policies with which he agrees.

After reading through this volume, there may be one question that remains in the reader’s mind. Why was it called Public Choice? It’s not as short, but The Economics of Power and Plunder would have been far more descriptive.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).